Tea Party candidate Carl Paladino, running for governor of New York, has railed against government spending. (Mecea for News)

Anti-big government gubernatorial candidate Carl Paladino is fighting to hold on to a $1.4 million tax break for a company that created only one job and put back into the economy less than it took out.

In a last-minute bid to keep that lucrative government subsidy, records show he overstated the worth of the company that got the break by including properties he'd already sold off.

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The millionaire Buffalo businessman, who last week became his party's candidate for governor, has shaped much of his Tea Party message by railing against government spending and vowing Draconian bureaucratic bloodletting.

At the same time, he's received millions of dollars in tax breaks over the years, mostly as payback for investing in distressed properties in and around his native Buffalo, where manufacturing jobs have disappeared and the economy has long been in a free fall.

In 2002, one of his companies, J-P Group LLC, won a major tax break from the Empire State Development Corp. by promising to upgrade 16 properties scattered near downtown Buffalo within what was then designated as an Empire Zone.

The properties included a doctor's office, a shopping center, several retail shops, a bank and a handful of vacant lots.

The program's incentive was to generate jobs and inject investment into a downtrodden area that would, in the end, offset the sales and real estate tax revenue lost.

It didn't work out that way.

From 2001 through 2007, Paladino's company received $1.47 million in tax breaks, but invested only $1.1 million in payroll and capital improvements. The end result was a net loss of $300,000, defeating the purpose of the program.

Also, when the tax break began, J-P Group had one full-time employee. By 2008, that number had grown to two.

Last year, facing a collapse of the economy and a growing budget gap, state leaders changed the rules, ordering a review of all such tax subsidies to see if they were worthwhile.

As a result, the state reexamined J-PGroup's tax break and revoked it in June 2009, declaring that the company "failed to provide the economic returns to the state" it had promised.

Paladino fought back.

Reversal of fortune

He lost his appeal to the development agency, but won a reversal in court. He argued that the state arbitrarily changed the rules. Last month, Erie County Supreme Court Justice Joseph Glownia agreed and ordered J-PGroup's tax break restored.

That argument about whether the state unfairly changed the rules had already surfaced in another case, and the question is now on appeal.

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Paladino also sent a testy Aug. 20, 2009, letter to Empire State Development Corp. Commissioner Dennis Mullen demanding that Mullen reverse his agency's decision.

Paladino noted that in two of the seven years he'd received the tax breaks - 2004 and 2007 - the payroll and investment did, in fact, exceed the tax benefits he received.

In five of those years, however, the tax break exceeded the investment.

Paladino also attached a list of what he said were all of J-P Group's properties. Records show that list was, at the very least, exaggerated.

By the date of the letter, he'd already sold off two of the lots. It's not clear whether that was a deliberate effort to inflate J-PGroup's worth, or merely an oversight.

His spokesman, Michael Caputo, declined to comment on that question, but argued that the judge's ruling in favor of Paladino rendered "moot" the question of whether the J-P Group tax break somehow benefited the State of New York.

Caputo called the tax break revocation "illegal," and Paladino applauded the judge's ruling.

"This victory over the New York State bureaucracy is a solid example of what can be done if you know the law. I was told by self-proclaimed experts and elected officials that this couldn't be done. Today it's done."

"Now the hundreds of businesses who extended themselves under the Empire Zone that were stomped on by the fools in the Legislature can win back their rights on this important precedent," Paladino added.

Over the years, Paladino has reaped millions of dollars in tax benefits from this and several other properties.

In 2003, he admitted that he'd lobbied hard to make sure his downtown properties benefited, telling the Buffalo News, "We convinced them to put all the properties on Main St. in the zone."

He's also been criticized for writing campaign checks to politicians at the same time he's seeking tax breaks.

For example, in July 2002, his J-P Group was formally certified to begin collecting its tax break. A few months later, in October, J-P Group wrote a $2,000 check to the campaign of Gov. George Pataki, the man whose appointees ran the ESDC that awarded the tax break.